Treasury Today Country Profiles in association with Citi

APIs: the real game changer

Person pointing at screen showing computer technology such as binary code

Over the past few years, APIs have received greater attention in financial services. Treasury Today Asia explores the benefits of APIs and discusses how this technology is set to impact treasury.

Before the advent of digital forms of communication, correspondence involved sending physical letters that took a day – or longer – to arrive. Today, using digital communication channels such as email and WeChat, individuals and businesses can communicate in a standardised way in near-real time whenever they need to.

The introduction of open application programme interfaces (APIs) into financial services is set to create a similar revolution in terms of how banks service their customers by facilitating the shift from batch processing to real-time processing. To provide an illustrative example, today corporates may receive details about their account balances at set times through SWIFT MT940 messages. In an API enabled world, there would be no need to wait: corporates would be able to access up-to-date balance information via their TMS, ERP or online banking portal in near real-time.

This is just one application of APIs that will benefit treasury departments. However, the transformative power of APIs will not only change how treasurers consume banking services – it will also give treasurers the chance to change the role that they play within the organisation.

APIs 101

Before diving into the transformational impact of APIs, it is worth spending some time explaining what they are, how they work and where they come from. In brief, howstuffworks.com says that an API is “a set of programming instructions and standards for accessing a web-based software application or web tool”.

To expand on this, APIs essentially enable different applications to speak to each other without any user knowledge or action. In doing so, they allow an application to be programmed so that it can seamlessly access a host of different services. The aim is to add value and provide a better experience for the end user.

ProgrammableWeb – a magazine that covers APIs – compares the technology to a plug socket. It explains that around the world, a plug socket acts as an interface to a service (such as electricity). The plug socket can then be used to power all manner of different applications. Likewise, aside from a few differences around the world, plug sockets look and behave the same. Consequently, they provide a standardised way for applications to connect to the electrical grid – just like APIs.

While it may seem that APIs are a completely new concept – especially when used in discussions around financial services – they have actually been around for quite some time. Indeed, forms of APIs first existed in the ‘60s. Over time APIs have evolved, become more robust and found more use cases. Today they are synonymous with internet-based services.

As a result, many of us use APIs every day – often without realising. For example, Uber connects to several different APIs, such as Google Maps, a digital wallet and a communications platform, to deliver its services. In doing so, Uber does not have to develop its own maps, payment service and communication platform and can instead access best of breed solutions that have made their APIs open to consumption. For the end user, this means they never have to leave the app, can interact with it in real-time and ultimately, receive a good customer experience.

Diagram 1: API workflow
Diagram 1: API workflow

Source: upwork.com

Gateway to the real-time revolution

Within financial services, APIs have become more prominent in recent years. A few factors are forcing this to happen, but the most powerful is arguably the regulatory pressure in Europe from PSD2. The new regulation mandates that banks publish open APIs to allow application service providers (ASPs) and payment service providers (PSPs) to offer overlay services.

Whilst there is not a similar regulatory mandate in Asia, the regulators are closely watching what is happening in Europe and are developing their own API strategies. As Morgan McKenney, Head of Core Cash Asia, Treasury and Trade Solutions at Citi, explains: “Regulators across Asia Pacific are promoting digitisation and developing real-time payment infrastructures for lower value domestic bank account payments and collections. By 2020, most countries in the region will have some form of real-time payment infrastructure. These payment systems are all API enabled and designed so that market players can plug into them and build services that benefit the end-users of financial services in those countries.”

The most advanced country in Asia in this respect is India, where the government has built a host of advanced API enabled financial systems that banks can plug into. This has enabled banks such as Citi and others to create new and exciting value propositions for their clients. “Citi’s Request to Pay solution for institutional clients in India is one of the most obvious examples of how APIs can help banks offer real-time services for seamless digital collections from bank accounts,” says McKenney.

The solution leverages India’s Immediate Payment Service (IMPS) infrastructure and enables consumers to make real-time bank debits from their account using a tokenised address, such as an email. For eCommerce companies selling in India, where card penetration is low, this solution opens the door to a much broader range of customers and gives them a low-cost collection method.

Delivering better services

In Asia, many banks are not waiting for the regulators to mandate APIs and instead are charging ahead with their own API strategies and enabled solutions. Citi, for example, has published its own Treasury and Trade Solutions suite of APIs, which enables developers to build services that can be consumed by Citi’s clients. Meanwhile, HSBC will soon be rolling out a solution to SMEs in Hong Kong that will enable them to see their account balances across all their API enabled banks through HSBC’s web portal.

HSBC is also working with a host of API enabled service providers to offer these services to its clients. “APIs are giving banks the opportunity to be more collaborative with the wider financial ecosystem and quickly leverage services created by third parties that can offer genuine value to our clients,” says Jennifer Doherty, Asia Head of Innovation for Global Liquidity and Cash Management at HSBC.

As well as pushing banks to be more collaborative, APIs are also helping to highlight the fact that banks cannot be the best at everything. “As a bank, our core strength is in finance, not necessarily technology,” says Doherty. “Once we realise this, the barriers go down and we become more willing to work with others and offer their services through APIs to our clients – it is a win-win for everyone.”

This point is echoed by Gautam Jain, MD and Global Head, Digitisation & Client Access, Transaction Banking at Standard Chartered. “It is about delivering services that offer convenience, efficiency and a good experience for our customers,” he says. “And if that means we have to leverage third-party solutions and offer these through APIs, then so be it.”

Diagram 2: Growth in financial related (financial, banking, payments, monetisation) APIs since 2005
Diagram 2: Growth in financial related (financial, banking, payments, monetisation) APIs since 2005

Source: programmableweb.com

Innovative thinking

For Imad Abou Haidar, Managing Director, APAC at Finastra, the emergence of APIs is also allowing banks to become more innovative. Finastra, which provides technology solutions to banks, has been progressive with its own API strategy, making its entire suite of products API enabled and allowing third parties to build services on top of its offerings to drive innovation.

“It is about breaking down financial services into small consumable chunks that can be upgraded without impacting the rest of the technology stack,” he says. “This allows banks to focus in on the areas that matter for their customers and innovate more effectively by leveraging third-party solutions or building their own solutions in house.”

The ultimate beneficiary of this will be the end user of financial services. “APIs will give banks the ability to offer much more flexible and customisable services to their customers,” says Abou Haidar. “For instance, at a basic level, the banks will be able to deliver better bespoke information – like the current price of crude for an oil company – through their client’s banking portal. That will be useful for them in their day-to-day work.”

At a more advanced level, Abou Haidar sees programmable APIs as the facilitators of an even greater experience for corporate treasurers. “Using APIs to stitch together a host of other technologies and services means that the banks could offer bespoke advice around where to invest cash, what cash might be needed later in the week and so forth,” he says. “This is a genuine value-added service and those banks that offer it will put themselves ahead of the rest.”

Banks will undoubtedly move at different paces and in different directions when it comes down to their use of APIs. However, it is clear that it is the direction all will have to move in. “In our personal lives we hold the providers we use very accountable for the service they provide and expect high standards,” says HSBC’s Doherty. “This hasn’t always been the case in the institutional space. However, corporate treasurers are human and as they experience improved services in their personal life they are demanding an improved service at work as well. If they do not receive this from their current providers, they will simply find a provider that can.”

Taking the lead

While many of the API services they consume will be delivered by banks, treasurers should not be passive consumers of the API revolution. Citi’s McKenney says that treasurers should begin to understand how this technology might aid their business, and that they should begin to develop their own internal API strategies.

“What is happening through APIs and real-time infrastructures is that banks are laying down the platform for corporates to leverage in multiple different use cases,” says McKenney. “As a result, treasurers need to work with their businesses to understand how APIs and real-time payments can benefit their own companies’ product offerings and drive business growth, as well as increase treasury efficiency.

“We have one client, for instance, that worked with the business to launch a real-time collections programme using APIs that connected to a popular e-wallet solution,” adds McKenney. “In a few months, the solution digitised 50% of the company’s cash, creating huge cost savings. It also gave the company a lot more data that it could use to better understand its customer’s behaviour and build solutions that enhance revenue. This solution was treasury-led and only made possible because of the emergence of APIs.”

An API future for all

Ultimately, it is clear that the future of banking will be API enabled. What this future will look like and what it means for those that consume financial services remains up for debate. Many believe that the future of banks and financial services will look very different.

No matter what, it will be good news for treasurers. If customer-centricity really is the aim of the banks, as they often claim, then the collaborative model will not only help bring the best possible solutions to market, but will also encourage banks to be the best they can be in terms of service delivery. From this perspective, APIs are well positioned to kick-start the next generation of corporate banking services.